The foreign exchange reserves of India surpassed Russia’s and became the world’s fourth largest. According to a report in Bloomberg, the foreign exchange reserves of both India and Russia have declined after months of rapid increase. However, India pulled ahead as Russia’s holdings declined at a faster rate in recent weeks and the Reserve Bank of India continued to hoard dollars to cushion the economy against any sudden outflows.
On March 13, the RBI said the country’s foreign currency holdings fell by $4.3 billion to $580.3 billion as of March 5, while edging out Russia’s $580.1 billion pile. Currently, in the International Monetary Fund (IMF) table, China has the largest reserves, followed by Japan and Switzerland.
At present, India has enough reserves to cover roughly 18 months of imports. Experts say this is due to the rare current-account surplus, rising foreign direct investment and inflows into the local stock market.
“India’s various reserves adequacy metrics have improved significantly, particularly in the last few years. The healthy FX reserves position should give enough comfort to the RBI for dealing with any potential external shock-driven capital-stop or outflows in the period ahead,” Bloomberg quoted Deutsche Bank chief India economist Kaushik Das as saying.
In 2020, the RBI bought a net $88 billion in the spot forex market. This made the Indian rupee the worst performer among Asia’s major currencies.
Following this, RBI Governor Shaktikanta Das in the latest interaction had stressed the idea of emerging market central banks to build reserves to prevent any external shocks. The RBI even focused on further strengthening foreign exchange reserves.